QCOM, RFMD, BRCM, SWKS: Pondering Galaxy S4 Gains

By Tiernan Ray

While analysts today debated the impact of Samsung Electronics‘s (005930KS) Galaxy S4 unveiling last night as far as Apple‘s (AAPL) fortunes, several sell-side analysts were also compiling their picks of winners to ride what are expected to be healthy S4 sales.

FBR Capital’s Christopher Rolland, for example, wrote this afternoon that while “some of the main chips in this teardown are still covered and have yet to be revealed,” nevertheless what he’s seen confirms some of his chip suspicions:

Both Synaptics (SYNA) and Atmel (ATML) are included and supply the touch controller and sensor hub (although we need to confirm ATML part number here), respectively. Additionally, we can confirm a Broadcom (BRCM) GPS part ($0.50) and an Intel wireless part (still digging). Skyworks [Solutions (SWKS)], TriQuint (TQNT), and Winbond are also in the phone.

Despite that happy news, Rolland writes that with the Philadelphia Semiconductor Indexhigher by 13% this year, and chip inventories not especially lean, “our favorite longs are BRCM and Qualcomm (QCOM). We would become more constructive on ATML and LSI (LSI) at slightly lower levels, and we see elevated near-term risks for PC-related stocks, including Advanced Micro Devices (AMD), Intel (INTC), and Nvidia (NVDA).”

Brian Blair with Wedge Partners also weighs in today, writing that “one Asia-market teardown we have seen thus far far shows Triquint, Broadcom, Synaptics on the board, along with a Samsung Exynos chip,” adding “RF Microdevices (RFMD) also issued a release today stating they had been selected to support a fourth-generation flagship Smartphone.”

The use of the emerging “802.11AC” short-range networking technology in the S4 is likely via Broadcom, he opines. “Broadcom is also supplying GPS capability with its BCM4752.”

“We expect significant AC growth in mobile this year.”

Of the 13-megapixel camera, Blair writes, “while this sensor is likely from Sony (SNE), we see a derivative benefit for OmniVision (OVTI) who is also a 13 MP sensor supplier and should see an increase in orders from its key higher end customers.”

Brean Capital’s Mike Burton sees gains for Qualcomm and Broadcom, but some benefit to Skyworks as well:

While we view QCOM & RFMD as the biggest content share gainers in the GS4, we believe SWKS has offset some of the RF losses with WiFi and Analogcontent (which carries higher margins) [...] In a cruel ironic twist, given the valuation compression the RF names suffered following QCOM’s RF360 announcement, RFMD’s biggest driver right now is the increasing dollar content it is seeing on QCOM platforms including the Galaxy S4. BRCM may not be a big dollar content gainer in GS4, but we believe they have kept the socket (despite fears of losing it), estimates are low and we believe we are in the early innings of an 802.11ac upgrade cycle that will benefit BRCM as (still) the dominant supplier of connectivity solutions [...] [Regarding Broadcom] We believe the upgrade to 5G WiFi will become only more pronounced when Apple also adopts it in the 2H of this year for its smartphones and tablets, which in addition to providing a higher ASP (relative to ‘n’) should also spur an upgrade cycle in access points as well.

On an interesting side note, Burton sees evidence of Qualcomm’s increasing importance in the inclusion of its baseband processor in the Korean version of the S4:

In the near term QCOM’s baseband business took a hit in Q1 from Apple-relatedweakness, but we are expecting a Q2 pick-up due to its increasing share on Galaxy S4 and at other OEMs. QCOM is operating virtually uncontested in the LTE market right now and our conversations at MWC [Mobile World Congress trade show in February] stressed the importance of Carrier Aggregation (CA) as a ‘must-have’ not ‘just nice to have’ feature for LTE-Advanced (aka Cat. 4 LTE) which will become critical in CY14. While BRCM is said to offer CA in their chip that is sampling (but set to launch in 2014), and MRVL has indicated that they have CA (but outside of BBRY we are less confident in their design wins to date), we note that INTC’s accelerated LTE roadmap does not yet include CA and thus misses the mark. Why? In order to achieve the Cat 4 LTE spec of 150Mbps downlink (up 50% from Cat 3’s 100Mbps) a carrier needs to have 20MHz of contiguous (adjacent) spectrum. For AT&T post the TMO deal denial this is basically mandatory if they want to offer the same capabilities in their top phones vs. Verizon in 2014. Interestingly, we were told that this is also ‘almost required’ for Verizon as well in ’14 (It actually matters a little less anyway if you’re QCOM since they have ~95% or more of the CDMA market). We would also note that investors need only to look to Korea for confidence that CA matters greatly where Samsung is being forced to ship GS4’s with QCOM’s basebands (likely Snapdragon) because some of the Korean SPs are already requiring CA.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.